Hello, everyone, and welcome to Klarna Fourth Quarter 2025 Earnings Call. My name is Filippa Bolz, Head of Communications at Klarna, and I'm joined today by Sebastian Siemiatkowski and Niclas Neglen. Our Q4 results were released at around 7:30 a.m. Eastern Time, and they are available on our Investor Relations website. During this call, we will discuss our business outlook and make forward-looking statements. These statements are based on our current expectations and assumptions as of today. Actual results may differ materially due to various risks and uncertainties, including those described in our most recent filings with the SEC. During this call, we will present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website as well as filed with the SEC. Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period in 2024. Before we move to Q&A, we will begin with a short presentation. Sebastian, please go ahead.

Thank you for joining Klarna's Q4 earnings call. Klarna is accelerating its growth of our banking relationships and our revenue per customer. Millions of consumers are adopting more of our services, the Klarna Card, Klarna's Deposit accounts, Klarna Fair Financing products and, of course, our well-known buy now, pay later services. Now this is exactly what we had planned for and wanted to achieve. And in Q4 2025, the adoption of these products accelerated beyond our expectations. As we scale this business, delivering on profitability is a key priority. In Q4, we delivered. Active consumers reached 118 million, up 28% year-over-year. Merchants grew to 966,000, up 42% year-over-year. GMV came in at $38.7 billion, above the top end of our guidance and revenue grew 38% to over $1 billion, also beating guidance. Now let's put these numbers in perspective. We are a bank with an exceptional network that is growing at 38% revenue year-over-year. In '25, we did over $127 billion worth of volume across 26 markets and across 3 continents. And we're growing exceptionally well on every top line metric, cementing our U.S. as well as our global leadership position. Transaction margin dollars before provisions grew 31% to $622 million, an acceleration of $107 million versus prior quarter. And after provisions, transaction margin dollar was $372 million, up 17% year-over-year and up 28% sequentially from Q3. Now the fact that transaction margin accelerated quarter-over-quarter points to the compounding nature of our model as more of our cohort's mature revenue and it's compounding at a faster rate. Now I want to be direct and transparent. This quarter's transaction margin dollar result did not land where we guided. We take that seriously. The acceleration in lending growth is the primary driver of that outcome. Now let's look at an illustrative example of that to understand the impact I'm speaking about. In this example, we have about $1 billion of loans originated. The lifetime profit of these loans, you can see on the left-hand side is $100 million in revenue, while your provision would be about $40 million and you would have other costs of $25 million, resulting in a net profit of $35 million. Now like all banks, we recognize these loan cohorts over a period of time. In the first quarter, as you can see on the right-hand side, we would recognize a fraction of the revenue, but we would recognize all of the expected provisioning upfront. This results in a first quarter transaction margin dollar drag of $25 million, as you can see on the red there. During the remaining quarters, we recognize the remaining revenue as well as the other costs. So the resulting lifetime net profit remains the same $35 million. It is simply spread over time and we see a $60 million positive impact on the P&L for the remaining quarters. This effect in the first quarter happens even when the underlying economics are strong and credit quality is stable. This is value creation that is deferred. For every provision we book today, we gain a future profit stream. Now let's take a Klarna example. For $2.5 billion of U.S. Fair Financing portfolio originated this quarter, Q4 '25, we booked $80 million in provisions upfront, and we recognized $40 million in revenue. So yes, this quarter, that's a $40 million headwind. But there's an additional $180 million of interest income still to come, while the cost, the expected credit losses have been provisioned for already. Just to repeat, faster growth, faster adoption means lower upfront transaction margins and operating profit. So when you look at our Q4 transaction margin dollars of $372 million, this primarily reflects the fact that the adoption of our expanding set of banking services are growing faster than we expected, including Fair Financing, GMV currently growing at 165% annually. At the same time, to support our accelerating growth in a capital-efficient manner, we ramped up our loan sales. And in Q4 '25, we initiated our first Fair Financing forward flow with $73 million of gain on sales recognized in Q4 '25. Continuing this strategy will further accelerate our profitability improvement in '26. Now let me speak to exactly what that growth looks like and why we're so confident in our strategy. Our partnership strategy, as described on our previous earnings call, continues to compound and support our long-term strategy of being ubiquitous everywhere as our payments network expands its acceptance points. Over the year, we added 285,000 merchants, up 42% year-over-year. We continued to scale our default relationship with Stripe. We began the default-on rollout with Nexi through Paytrail, and we expanded Apple Pay and Google Pay into additional markets. We also launched new partnerships with Emirates, LEGO, Vinted and StockX, while further deepening our relationship with large global merchants such as Walmart, Lufthansa and Etsy. At the same time, we're accelerating our product ubiquity, ensuring that we have relevant payment options wherever the consumer shops. We doubled the amount of merchants where fare financing is available and continue to expand our pay in full product to almost half of our total merchant base. The benefit of building that network, close to 1 million merchants globally across 26 markets, online and offline, is that we've already captured the hardest thing to win, the consumers' everyday spend. The checkout moments where trust is built, and that is the foundation. And now we're leveraging it. Once you have the everyday spending relationship, once the consumer is using Klarna 10, 15, 20 times a year at checkout, the step into a banking relationship is natural, low friction and extraordinarily cost-effective. There is no cold start. We already know these customers, and they already trust us. And in Q4, this played out at an accelerating pace. Active card users grew to 4.2 million, up 288% year-over-year. Consumer deposits reached $13 billion, up 37%. And our most engaged consumers, the Klarna banking customers, reached 15.8 million, growing at 101% year-over-year. This growth is not linear. It is compounding as we build deeper relationships with our consumers. Let's deep dive into a comparison of that total consumer base versus the banking consumers that have adopted more of those banking products. Our base of 180 million Klarna consumers is growing at 28% year-over-year and transact about 10 times a year with us. They have an average revenue per user of about $30. But now look at what happens when that relationship expands into a deeper banking relationship. Those 15.8 million consumers transact nearly 3 times as often, 28.5 times a year with an ARPU of $107. The average deposits jumps from $64 for our paying customers to $475 for our banking customers. And credit balances remain modest. Compare that to any credit card bank that would usually be at about $6,500 or 10 times as much. And the charge-off rate moves from 0.6% to just 1.1%, a fraction of the 4% to 5% you would see at normal standard credit card banks. So more engagement, more revenue, disciplined risk. That's the conversion we're driving, and it's why we're leaning into this growth despite the near-term provisioning drag. Now this expansion of our banking product is built on our transaction relationship with our consumers and the knowledge we have built around risk management for the past 20 years. Our proprietary underwriting systems that we've developed underwrite every single transaction. We don't issue revolving credit, and we leverage our deep understanding of our consumer spending habits as well as external data. The result is consistent and stable charge-off profiles as evidenced by the stable 3% to 4% charge-off rates for our U.S. Fair Financing product. And we are delivering all of this with a fundamentally different operating model. Leading into technology allows Klarna to deliver a range of services with a headcount that is a fraction of the size of a traditional bank. Klarna's success is built on talent density and relentless focus on efficiency, and we believe this is a lasting competitive advantage. Now look at this, revenue per employee now reached $1.24 million in '25, a 3.6 times increase since '22. And critically, we've reinvested some of these savings back into our talent. That's the operating leverage that compounds alongside the banking growth I've just described. Since 2022, we have accelerated our revenue growing 104%, while at the same time, managing our adjusted operating expenses effectively as it has declined by 8%. In 2026, we expect to continue to expand revenues faster than our operating costs as we focus on building the consumer bank of the future. As we provide 2026 guidance for the first time, we are incorporating this growth trajectory and the associated timing effects, while being disciplined and realistic in how we frame expectations. The underlying trajectory, revenue compounding, cohorts maturing, a lean cost base give us confidence in the path ahead. Thank you.

Thank you for that presentation. We'll start with 3 investor questions from Say Technologies. The first question is from Shubhayan. When are you planning to become profitable? Klarna's share price has declined since the IPO and investors aren't happy. What changes do you think may be needed in the organization or the product?

That's a great question. So as our illustrative example showed, this is how the dynamics work in general. Every additional $1 billion in loans that we add in a single quarter will reduce TMD or transaction margin dollars by something like $25 million that same quarter, but it will increase transaction margin dollars by $60 million in the upcoming quarters. So the more we grow in these books, especially the more profit we're generating for the future. So the real question is simply, do we want to make more money even if it means slightly less today to make significantly more tomorrow? You might also, though, ask, obviously, for how long. Well, the good news is we have natural cushions. As we sell more loan portfolios where revenue and costs are recognized immediately, the timing effect diminishes. We did $4.5 billion in Fair Financing last year, growing 165%, winning deals like Walmart and rolling out across all Stripe merchants and so forth. So as these growth rates obviously eventually will normalize, so will this dynamic. Some of you may even remember JPMorgan Chase faced this; Jamie Dimon famously said on the Sapphire card that he wished he had taken twice the losses. This was 2017, slightly different rules, but the same concept. So the question becomes, given that we can issue those additional loans, should we? And as a shareholder, at least my answer is an absolute yes. Klarna has issued over $0.5 trillion in loans over 20 years with record low losses across that entire period. That's a proven underwriting machine. And when we have the opportunity to deploy that machine and create significant value, we should. In addition to that, to answer the question even more specifically, Niclas will speak about our guidance soon to give you a more concrete answer for this year.

Thank you. The second question is from Marc. How will you prioritize capital allocation between reinvestment, debt reduction and shareholder returns over the next 12 to 24 months?

We're experiencing fantastic growth and a significant increase in the adoption of our banking products. At the same time, some of you might have noticed our rapid product announcements as we quickly fill any feature gaps for both neobanks and traditional banks. We're doing all this while maintaining cost discipline. The result of these efforts is increased revenue and profits, and once those are finalized, we can discuss our plans for them.

And the third and final question is from Adam. With the 102% surge in credit loss provisions reported in Q3 '25 still weighing on sentiment, what are the latest delinquency trends? And how confident are you that provisions will stabilize or decline as a percentage of GMV heading into 2026?

Thanks, Filippa. That's a great question. From a credit perspective, what we're seeing is actually stability, not a deterioration. Provision credit for credit losses actually declined in Q4 versus Q3 from 0.72% of GMV to 0.65%. And that really reflects both a stable delinquency trend and an impact of the increased loan sales that Sebastian previously explained.

Thank you. We will now move to questions from the analysts. Our first question comes from Sanjay Sakhrani at KBW.

I appreciate all the commentary. Niclas, do you mind just digging a little bit deeper into this quarter's impact from the excess loan growth? I'm just trying to parse apart sort of the provision related to credit versus the provision related to growth that sort of speaks to that mitigating impact on transaction margin dollars. And then maybe if you could talk about how it might affect 2026, that would be great, too.

Great. Thanks. Sanjay, thanks for the question. Look, I mean, in Q4 '25, and I think the dynamics are here are twofold, right? You're seeing a very strong growth and seasonality that drove significantly higher pay later volumes, and those are on our non-interest-bearing loan product, right? These are actually classified as sold or held for sale as part of the cost of funds, which you can see in the broken-out report that you have on the CFO letter, right? And these loans are actually primarily sold through our forward flow programs. And so those loans are measured at fair value. And so the result is that you get a fair value adjustment that is substantially offset by a corresponding reduction in the provisions for credit losses. And while you then see the credit losses that we have today, primarily then driven by Fair Financing. And if you think about it, right, and we've broken out the Fair Financing volume as well in the back end of the paper. But ultimately, what you're seeing is a mix shift towards Fair Financing that was stronger than what we had expected as we're seeing more and more banking consumers coming with more banking product with us. And that's really what's been driving that. '26, we have guidance there, and I can take you through the details of that. But ultimately, we're seeing similar trends there. Year-to-date in January, we're seeing good, moderately stronger growth than in Q4 '25. And so I think we're heading in that right direction from that perspective.

Perfect. Thank you so much.

Okay, great. Maybe just one follow-up.

Okay. Go ahead.

Go ahead. Go ahead, Sanjay.

Sorry, I didn't know if I could ask to. Maybe just one quick follow-up for Sebastian. I mean maybe just how you feel like the Walmart rollout has played out, if you're happy with it and sort of any traction otherwise you're seeing in the United States?

No, I think Walmart is a significant achievement, and the rollout has been impressive. What excites me most is our strategy to establish a strong third-party network, relying more on our partners like JPMorgan Chase, Stripe, and Adyen for distribution. This strategy is reflected in the increasing number of acceptance points and merchants. Additionally, we are experiencing growth in Fair Financing, as not all our merchants have historically offered this. We ensure that our distributors provide all our payment methods, so it’s not just about the number of merchants but also about making pay now and pay later options, along with Fair Financing, available at every checkout. This ensures there is always a relevant payment option regardless of what the retailer sells, from furniture to games. This approach forms the foundation of our growth. However, it’s still early, as many large distributors are in the process of implementation. We're pleased with the current progress because we believe this will drive solid growth for us in the coming years. I’m very satisfied with what we’ve seen from Walmart and the overall impact both in the U.S. and globally.

The next question comes from Will Nance at Goldman Sachs.

I was wondering if we could drill down into the transaction margin expectations for the coming year. As we look at the guidance that you guys have laid out, it seems like transaction margin is coming in roughly 10% or so below current consensus expectations and hear you on sort of the front-loading impact of provisions in GMV. But when we look at the first quarter, GMV was much closer to the guide, whereas transaction margin was something like 3, 4 points below. So I guess with that context, can you talk about the transaction margin trajectory that you are expecting now versus what you had previously expected? What are the changes? And how do you think about the path to getting towards transaction margins in the kind of 115% to 120% range where the company had operated historically prior to the big expansion in lending?

Sure, thanks for the question. I appreciate it. Before addressing your question directly, I’d like to share our thoughts on the guidance. Let's begin with the first quarter. We entered 2026 with strong momentum, tracking modestly ahead of Q4 2025 levels. Our banking products, including fair financing and the Klarna card, remain the primary growth drivers, and we're seeing strong adoption. This is one aspect of what we anticipate for 2026. Our forward flow programs provide a capital-light foundation for sustained growth, and we expect to execute some agreements throughout the year, including one in Q1. This is reflected in our transaction margin dollars and adjusted operating income ranges for Q1. The percentage of transaction margin dollars related to joint ventures is expected to remain consistent with Q4 2025 as we invest in supporting rapid scaling. Therefore, in 2026, we expect GMV and revenue growth to be in line with 2025, which, given the $127 billion in volume this year, is very healthy growth. As the mix of maturing Fair Financing cohorts increases, we anticipate revenue compounding throughout the year, with transaction margin growth accelerating in the second half. This reflects the payoff of our upfront provisioning model. Our adjusted operating income margin is expected to exceed 6.9% as we continue to see revenue and transaction margin dollars outpacing the growth of our operating costs. In simple terms, the transaction margin dollars depend on the geographies we are expanding in and the volume of Fair Financing as part of our banking evolution.

That's great. I appreciate all that color. And just you mentioned the offloading dynamics starting in the first quarter, likely continuing for the year. I was wondering if you could provide your latest thoughts on just expected offloading on the Fair Financing book in the U.S., maybe relative to the amount of loans sold in the quarter. Is there any kind of parameters around percentage of production sold that you guys are targeting for the full year as we just try to true up that part of the model?

Yes. So we're not going to give exact guidance because we are really commercial in the way that we think about this. We have some great partners that we work with in this regard, but we also want to be sure that we balance it, right? So my expectation is that we're looking at the transaction in Q1. If you look at Q4, we sold about $1.6 billion. This transaction will be slightly smaller than that, right? And so what we'll see is through the year, as and when it makes sense to do these sales, we will be executing them, and that might change depending on quarter-to-quarter, right? So that's probably the best I can answer at this stage.

Over to our next question, which comes from Jason Kupferberg at Wells Fargo.

So can you just talk maybe a little bit more specifically about what you're embedding in the guidance for 2026 for Fair Financing, specifically just in terms of loan growth there? I mean, obviously, you're going to lap Walmart later this year, but I would like to get a sense of what's assumed in the initial outlook here.

Yes. So we're not going to give a specific split, but what I can say is that we're going to, from an absolute volume base, accelerate in comparison to 2025. Now as we go through the year, just given the fact that we started where we started and have been scaling so quickly, the year-over-year percentage comps through the year will kind of pan out or it kind of decelerate to some extent, right? But that's from a percentage perspective. On an absolute basis, we're continuing to compound.

Okay. Understood. And then maybe one for Sebastian, just big picture. On agentic commerce, I think a lot of debate out there about what branded button presentment and prominence might look like in a truly agentic world where transactions are being completed natively on an AI platform. How is Klarna thinking about that, preparing for it? Obviously, you guys have announced some partnerships, but would just love to get a sense of what your crystal ball is in terms of what consumer checkout experience might look like in that scenario down the road.

Thank you, Jason. That's a great question. There are many ways to respond, so I’ll keep it brief. First, we believe that this represents the evolution of e-commerce, which has been part of our strategy for a long time. Consequently, we recognize the importance of partnerships and distribution with companies like Stripe and Adyen, since they are often the go-to for implementing agentic commerce. By positioning ourselves as a default option across many platforms, we ensure that we are always accessible. Additionally, our launches with Apple Pay and Google Pay further enhance our availability wherever these services are utilized, providing us with broader coverage. We are also engaged with major AI companies, although I can't make any promises in that area, it's a focus for us. Moreover, we believe that buy now, pay later is a healthier alternative to credit cards due to its interest-free and fixed installment nature. This is factual, and despite varying narratives in the media, if you ask leading AI companies which credit option is the healthiest, they will recognize the advantages of buy now, pay later. Therefore, we think that having a superior product will lead AI to recommend it over traditional high-interest options. Overall, we feel well-prepared and are in a strong position as agentic commerce continues to develop.

Our next question comes from Harshita Rawat at Bernstein.

So I want to ask about the competitive environment. Some of your peers have talked about intensified dynamics in Europe and the U.S. Maybe talk about what you're seeing in the market? And then also maybe comment separately on the consumer kind of I think there's concern around continued kind of pressure on the low-income consumer. What are you seeing and hearing from your customer base, both in the U.S. and Europe?

I'll take that question. I feel very confident about our competitive position. This confidence stems from our partnerships, which are essential to our goal of becoming a global payment solution. Many merchants across different markets seek global solutions, and Klarna is now viewed as one. This recognition provides us significant advantages in collaborations with major brands like H&M, Shein, Walmart, and Sephora. The ability to offer pay now, buy now, pay later, and fair financing across various regions has never been achievable before, especially for large home electronics manufacturers. Our extensive geographic coverage is crucial for securing agreements, giving us an unmatched strategic edge in the industry. While individual companies exist in specific markets, our broad reach offers a tremendous advantage. This is also appealing to partners like Stripe and Adyen, as they prefer to work with a provider that has such global coverage. I am confident in our potential for growth and maintaining margins. Regarding our consumer base, we're also optimistic. The users of our product are what we refer to as self-aware avoiders—financially conscious individuals in both the U.S. and Europe who tend to avoid credit cards and borrow minimally. Their average credit card balance tends to be around $4,000 to $5,000, while Klarna paying customers typically have around $100, and those using Klarna banking have about $400 or $500. This speaks to their financial awareness. They appreciate our products, which feature zero interest and fixed installments, considering them healthier alternatives that help maintain their economic stability. We see solid performance as they continue to shop and spend responsibly, which we value.

The next question comes from Darrin Peller at Wolfe Research.

I really just want to go in a little bit more maybe for Sebastian on the tools. But basically, the idea of where you believe the right balance should be between lending and interest income and transactional streams. Just as far as the company's longer-term goals, I understand it's demand-driven to some degree and to the most degree. But anything you could help us with and where you see that sort of leveling off? And then Niclas, just maybe on a short-term basis, we're also trying to understand where we expect to see the inflection on provisions offloaded to a degree that it actually does help the TMD grow at a faster rate this year potentially.

Maybe you want to start, Niclas?

Yes, sure. Thanks, Darrin. I appreciate it. I think it's a good question. If you look at it, what we actually are looking at from a TMD perspective is a significant uptick in growth, right? And you've seen that kind of sequential increase both from Q3 into Q4 now, right, with TMD. And I think as we continue to compound through the year, like I said earlier, Q1 definitely still has a lot of that rapid growth coming in. And then you start kind of cycling into an absolute growth balance, but then the percentages from a comp perspective kind of recede a bit into the second half of the year, right, which is kind of what I said. So I think that is kind of the short answer to that. And I think you're going to see that continuous TMD acceleration through kind of the second half of the year, as I said earlier.

Thank you, Niclas. Sorry, Darrin. Would you mind just repeating your question for Sebastian?

Yes, I was just trying to figure out what do you guys think is the right mix sort of in a steady state? Obviously, you're in hyper growth right now around Fair Financing in your banking products, but trying to get a better sense of where you think that should level off, where you'd like it to level off, thinking about interest income as a percentage of the mix of the business versus other revenue streams.

That's a great question. I think as a general guideline, when I evaluate provisions for credit losses, about 80% is forward-looking while 20% reflects past data. As we expand Fair Financing, we're currently in a high-growth phase, but that may not always be the case. Compared to other neobanks, many of which are smaller in lending but larger in deposits and subscriptions, what we’re experiencing now is partly due to the strategy we adopted a few years ago to have our partners distribute our services. Currently, only around 200,000 merchants, out of 800,000, offer Fair Financing, so there's potential for continued growth in that area. However, I’m also focused on increasing other revenue streams like marketing and subscriptions along with deposit revenue. Over time, we may see a shift towards these other revenue lines, but it will take some time to fully reflect that in our numbers, especially since we're a sizable bank now. Any changes to our products may take longer to show results in our financials.

Next question comes from Tien-Tsin Huang at JPMorgan.

I want to ask on the processing cost side, if you don't mind, a model question. Lots of moving pieces, I know with partner and product ramps as we've discussed here. But how should that processing line trend in relation to GMV? Any insight there to share?

Sure. Thank you, Jason. The reality is that this question involves a mix of factors, including the volume coming from the U.S. and the types of products we take on. In the short term, you can expect to see trends similar to what we experienced through 2025. However, in the medium to long term, our focus is on improving that trend line. As Sebastian has mentioned before, we are actively working to move that line in a positive direction, not just regarding mix but also because we now have a current account and balance, and we are beginning to see refunds come in. This reduces our dependence on alternative methods. Right now, we are facing some challenges due to increased card issuance, as more consumers are using our services. Similar to our Fair Financing initiative, we are investing in this area, and with over 4.2 million active card users, we are experiencing significant growth. While this does entail some upfront costs, it is creating a loyal customer base that will help us drive more transactions through our own systems, ultimately lowering our processing and servicing costs.

To add to that quickly, Tien-Tsin Huang, we are coming from Europe where payment and funding costs were almost zero or very low. Now that we're in the U.S., we've experienced significant growth. We understand that larger fintechs and competitors based in the U.S. have effective strategies to address this issue. However, it will remain a continuous focus for us because, as you mentioned, there’s a lot of potential, and we need to execute, implement, and see positive results in our financials.

Understood. It's a work in progress. Good to know. Niclas, you mentioned stable delinquency trends. From the charts in the shareholder letter, it seems that some of the newer vintages on the delinquency side are steeper and higher than prior vintages. I'm curious if there are any surprises there, or if I could gain a better understanding of those trends.

No, there are no surprises there. If you look at it, you have to understand that we're ramping through these processes fairly quickly, but it's all within the trend base that we expected. As your models scale, they improve continuously. That's why I included both the 60 days past due view that we've been consistently showing and the 30 days past due, where those trends are normalizing over time. I think this is a really key point. We underwrite every single transaction and have been doing this for 20 years. While we are scaling the business, we are doing it in a very disciplined manner. Our low average order values and short durations allow us to manage and adjust these models consistently, which is what we're demonstrating.

In addition to that, it's important to note that we prefer starting with buy now, pay later and pay now solutions for small transactions, typically around $50 to $100. This helps us build a large audience of customers that we know well and have assessed for payment performance. As we scale our financing efforts, a significant portion of the Fair Financing volumes comes from existing customers with whom we already have established relationships and have been underwriting for several years. This approach is a crucial aspect of our strategy at Klarna; being involved in daily transactions strengthens our relationships with customers and enhances our understanding of them over time, which significantly aids our underwriting decisions.

I would say that the vast majority of our Fair Financing being underwritten is with consumers who have previously engaged with other types of products.

Moving on to Mihir Bhatia from Bank of America.

I would like to begin with a question about the Klarna card. Can you explain how consumers are utilizing the card? Is it becoming a preferred payment option, or is it mainly used for financing transactions? Are there noticeable differences in how different customer demographics or regions are using the card?

Yes, Mihir, it's Sebastian. We are very excited about this. I was trying to find a bank issuer that has launched a card with such a high number of active users in such a short time since it started rolling out in the summer. I think it's really unprecedented, which is impressive. We see strong usage of this product in both the U.S. and Europe. What we're pleased to observe is that, as you mentioned, it isn't just being used for a pay later or Fair Financing card. A significant proportion is actually used for debit transactions related to everyday spending, which is exactly what we aimed to achieve. When we consider this transition, we want consumers, whom we refer to as Klarna payers, to evolve into Klarna bankers by adopting more of our financial products. This includes deposits, debit spending, credit to some extent, along with subscription tiers, loyalty cards, and cash-back offers. We are very optimistic about the insights we have gathered so far regarding this.

Could I just add something there, Sebastian. I think it's a really critical point to make that what we're seeing is a high teens growth even in established markets like Sweden, where we have 80% population penetration. And that is very much because of the card, right? You're seeing that people are adopting us both online and offline here. And I think that's a very unique positioning for us to find ways to grow with our customers in the way that Sebastian described, but also then ability to expand that monetization opportunity as well.

Got it. And then if I could just follow-up, I want to go back to the questions around the trajectory of transaction margin as a percent of GMV or revenues, however, you want to answer it. But look, I think I hear you regarding the mix and the Fair Financing growth pressuring 2026 margins a bit. But I guess, like when does the delayed profit from the back book start to offset some of that growth? Like how are you thinking about those margins maybe as you go out a couple of years? Where do you think transaction margins should settle out? Like your competitor has obviously given some guidance. And I was just wondering if you have a view on that, like where transaction margin as a percent of GMV should settle out medium to long-term?

I believe TMD is progressing, and while we won't provide long-term guidance past 2026, we have previously shared some frameworks. We've mentioned a range of approximately 1.5 to 2 percentage points. It's important to focus on the revenue mix we have. We should consider the growth trajectory of the Fair Financing aspect and how it scales moving forward. As we gain insights into the balances' capabilities, we will better understand how these elements will evolve.

Moving on to Robert Wildhack at Autonomous Research.

You've mentioned the initial provision for banking services, which includes Fair Financing, among other products like the card and savings that seem to have lower loss potential. What I'm struggling to understand is how Fair Financing is expected to grow this year while at the same time, you're also expanding into products that appear to have a lower overall loss content. However, there's a less significant increase in the transaction margin expected in 2026. How do you reconcile those two aspects?

Yes, thank you, Robert. Great question. I think two things are important here. What surprised us was the adoption of Fair Financing among our customer base. More people took up this product than we anticipated, which caused more negative pressure on the transaction margin dollar due to the upfront booking, the primary driver of that. But to your point, we're also seeing strong growth in other products like the card and subscriptions. Ironically, these also come with a slight additional upfront cost. For instance, every time we issue a card, there are front-end costs associated with that. While these effects are more limited, we believe you're going to see a positive impact as these products continue to grow, including the subscription offerings. I feel quite optimistic about this topic as well. Niclas, would you like to add anything?

Yes. No, I agree. I mean the subscription; we're already seeing a huge amount of people coming in. We have about 3.5 million already, and we're seeing that just expand on a monthly basis. So those revenues will start building up over time through 2026 as well.

Okay. And then I see the negative fair value adjustment on pay later in the funding costs. Given the short duration there and your ability to grow deposits and the balance sheet capacity you have, what's the benefit of selling pay later at a discount?

So the vast majority of the economics of that actually sits in the merchant discount rate, right? And so the purpose of this is really from a liquidity as well as from a capital perspective. We've done a few of those, and we may do some more in the future. But ultimately, the key thing here is really to be able to balance how much return I get from every asset that I get in. So there's also a value to Sebastian's earlier point of holding Fair Financing that generates a higher yield as well. So it's constantly a mix of ensuring that we keep ourselves capital light that we can continue to grow and expand as much as possible. But we want every tool in the toolkit, and that's why we've leveraged this type of transaction.

Moving on to Nate Svensson at Deutsche Bank Securities.

Maybe I'll sneak in 2 here. Then some questions on the competitive environment, agentic placement. Maybe a related question on that is just the topic of exclusivity, which I think is probably worth exploring in light of some recent comments from your competitors in the U.S. I guess our understanding is that exclusivity is more the exception than the rule in the industry. Obviously, you guys have Walmart. I guess just in light of what we're hearing from competitors, do you think that dynamic is going to change? Is Klarna going to try to go after more exclusive deals? Or is something like Walmart once again kind of more the exception than the rule? And then briefly, maybe this one is for Niclas. Just on funding costs. I know earlier in the Q&A talking about funding costs moving from Europe to the U.S. that went up again quarter-over-quarter in 4Q, presumably because of the continued fast growth in the U.S. Just wondering how we should think about funding costs as a percentage of GMV in 2026 as the year progresses.

I can start. Nate, thank you for the question. I believe that while exclusivity agreements can sometimes make sense, the best competitive advantage comes from being the most preferred payment method at checkout for consumers. While it can be tactically beneficial to enter exclusive deals, we don't mind being alongside other companies, just like Visa and Mastercard or Amex have been for a long time. Our main focus is on customer preference. We know from experience that some merchants offer multiple options in the buy now, pay later space, and we capture the highest share of checkout from consumers. This is what we should prioritize. Occasionally, exclusivity could make tactical sense, but what's remarkable is that with Apple Pay, anyone in the U.S. can use Klarna's buy now, pay later at any merchant, regardless of their bank. Building consumer preference is our key long-term strategy. Over to you, Niclas.

Yes. Great. Look, the reality is if you look into some of the details in the notes, you can see that what you'll see with cost of funds because we model it in accordance with the forward views on interest rates, et cetera, you would expect that to decline in line with forward interest rates, assuming that they are correct, right? And that's really how we model it. And then like I said, we have a stable outlook with regards to the forward flows that we're doing. So those are there already practically speaking. So to me, that should be support an improvement over time, depending obviously on the interest rate base that you see, right? So that's simply where I'd say. I think the key thing is also just to note on your comment with regards to the U.S. I think it's important to appreciate that it's not really just the fact that we're moving or we're expanding more volume in the U.S. It's actually we're expanding our volume across the board, right? We have very, very healthy growth, both in Southern Europe, but also like I mentioned earlier, in our established markets because we are expanding that banking services that we were speaking about.

Your next question comes from James Faucette at Morgan Stanley.

I appreciate all the commentary here. I wanted to follow up on a couple of points that were made earlier. I want to revisit the TMD topic. Is there a threshold regarding delinquency rates that, if reached, might lead you to consider scaling back on GMV? It would help us understand how to think about this, particularly as you continue to enhance your financing options and other initiatives.

I'll let Niclas answer that, James. It's important to remember that Klarna has underwritten $0.5 trillion with record low credit losses during my time here. We have strong confidence in our underwriting and proprietary models. As we've highlighted, we see this as mainly a question of timing. That's how we view things moving forward. So, I think that's a starting point, and maybe you want to add something more specific.

Yes, sure. James, I think the key thing when you want to think about this is that because we, firstly, underwrite relatively low average order values, and we do so on very short tenures, we have the ability to constantly adjust the portfolio, which is what we do. So it's not so much a question of like, oh, well, there's this bar for something. It's more a question of how comfortable do we feel with those continuous cohorts that we're looking at. And we're not just looking at cohorts on a quarter or a month or something. We're looking at the cohorts literally on a weekly basis, right, and understanding the performance of that. And that's what we've been doing for 20 years. That's what we're going to continue to do, right? And so I think we've evidenced historically, and we've talked about it before with regards to how can we adjust this and what are the impacts of those adjustments as we go along. So that's really how we think about it. And obviously, we're always trying to keep an eye on that profitability and ensuring that we do this in a balanced fashion, right? And I think we've evidenced that we can do so over the last 20 years.

Yes, I believe we primarily underwrite for existing customers, maintaining low average balances, roughly $100 compared to $500 at other banks, while the large banks may average around $5,000 on credit cards. Our focus is on keeping lower amounts per transaction and generally having much shorter durations than other banks. Unlike them, which commit to longer credit card volumes, we have very short durations and can effectively adapt our underwriting according to macroeconomic conditions.

Got it. And then I wanted to follow-up on more of a thematic question. I know most of this conversation today has been around kind of the mechanics here. But any initial takes on how unit economics in agentic e-commerce will evolve for Klarna, especially in an environment where it seems like some of the labs are charging merchants as much as 4% or more.

No, I don't think we have a comment on that. What we've seen is that we have strong distribution and are experiencing growth. We still view the U.S. as a higher margin opportunity because Europe is accustomed to lower payment costs, and that is where we have been competing from.

Next question comes from Harry Bartlett at Rothschild & Co Redburn.

I just had a question on the GMV guide. I mean it implies kind of a minor deceleration. But I just wanted to touch on your comments around the U.S. Fair Financing, Klarna card all kind of coming in above your expectations and a year-on-year acceleration. So I guess, does that imply that maybe there's a bit of an offset in some other products or other regions? And maybe you could just give some color there.

Sure, thanks, Harry. Looking at the comparison between '25 and '26, we are growing at a consistent rate due to a significant volume increase. As we consider our projections for '26, we remain dedicated to maintaining this growth pace across all markets. We're observing strong growth in each of them.

Yes. I would like to emphasize that as we approach the end here, Harry, we have set a goal to establish a global retail bank with Klarna. Looking at this quarter, we are clearly on a strong path towards achieving that. We nearly have 120 million users worldwide, with a growth rate of 28%. Our banking segment has reached 15 million users, growing over 100%. Additionally, we are seeing healthy growth in various new revenue streams, including subscriptions, the card, and Fair Financing. If this trend continues, Klarna is likely to become one of the leading retail banks globally. Given the current growth rate of our card offerings, we could soon rank among the largest issuers of credit cards worldwide. We are very excited about these developments.

Thank you. We now have time for one final question, which comes from Timothy Chiodo at UBS.

I want to hit one around TAM expansion and the topic of 0% loans to consumers merchant funded for the longer term. You mentioned earlier talking about sort of starting with smaller loans for new customers as you build, I'm just assuming in the U.S. market. But as we look at TAM expansion going to higher income consumers, maybe with better credit profiles, it's a bigger topic for your competitor. I was hoping you could just give an update on where this sits within your mix of GMV and where it could go in terms of offering longer-term pay later merchant-funded loans to consumers? And then I have a follow-up on the U.S. business.

Thank you for your question. I don't see it as a lesser topic for us; we simply have many topics to discuss. From our perspective, our experience in Europe shows that Klarna eventually becomes a regular spending partner for consumers. In many of our original markets, like those in Germany and the Nordic region, we’re seeing population penetration rates of around 70%, 80%, or even 50%. This indicates that a wide variety of consumers are using our product. We believe that the same trend will eventually occur in the U.S., and we will tailor our offerings accordingly. The 0% financing option is a compelling offering, and there is significant interest from global retailers and brands, as they seek consistent service across various markets. If you're in the home electronics or mobile manufacturing sector, you might find it appealing to sign one contract and collaborate with a single team to launch in over 20 markets. This is a key priority for our Chief Commercial Officer, Sykes, who is not present today, although it was not the main focus of our discussion today.

Tim, you didn't ask...

No, he didn't ask the last one, Tim, sorry.

That's okay. Yes. It was on the U.S. volume growth. If there were any undercurrents that you could talk about. We would have expected a slightly faster growth in the U.S. in Q4, given Q3 had a partial contribution from Walmart and Q4 had a complete or full or close to full contribution from Walmart. And we were just wondering if there were other factors that might have led to that lack of acceleration in U.S. volume.

I’m glad to hear you have high expectations for us. Personally, I'm very pleased with our performance in the U.S. I know that with big strategic partnerships, there’s always some tweaking needed; you have to continuously improve. This will continue to happen with the partnerships we’ve discussed as well as others like Stripe and Adyen. More work is being done in these areas, and we are seeing fantastic results.

And with that, we conclude the call. Thank you so much, everyone.

Thanks, everybody.

Thank you so much.